Morgan Stanley Raises Splunk Price Target To $74

Morgan Stanley remains Overweight on Splunk Inc (NASDAQ: SPLK) shares and raised the price target by 28 percent to $74, saying that the company's second half outlook could prove conservative.

"Compelling use cases, expanding delivery/pricing models and growing productive sales capacity should showcase Splunk's evolving Platform story in FQ2 and beyond," analyst Keith Weiss wrote in a note.

"We believe the outlook of ~30 percent revenue growth from Q2-Q4 will once again prove conservative, given continued investments in the business, an expanding partner network (Accenture, Cloud vendors), and a stabilizing ratable mix," Weiss noted.

Among the growth drivers, the analyst highlighted Splunk Cloud whose orders more than doubled YoY over the past few quarters. Weiss expects Splunk Cloud billings moving from 3 percent of total billings in FY16 to about 5 percent in FY17, contributing 7 percent of billings growth in FY17.

Further, Splunk's new premium applications, add-ons and integrations over the past year should drive additional usage, while the company would benefit from growing ecosystem of distribution partners.

"Taken together, we see a high probability of top-line growth sustaining 40+ percent with material incremental margins– continuation of these trends through FY17 should drive SPLK higher," Weiss added.

At the time of writing, shares of Splunk rose 2.53 percent to $61.66. The revised price target of $74 implies a potential upside of 23 percent over Friday's close of $60.14.

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